Saturday, January 31, 2009

Another funny bank?

Peter Mandelson wants to set up a "People's" bank, using the Post offices as a branch network. The new institution would have "a clear social purpose."

Behind Mandelson's proposal, there is the usual internal New Labour political calculation. The plan would head off a potential back bench revolt over the Post Office privatisation.

Daft ideas, like this one, are always slipping in and out of fashion. There was once a post office bank called the Girobank. However, it fell out of favour, and it was privatized. Now, as the rest of our financial system implodes, the government wants to revive the Giro and start again.

But do we need another bank?, High streets across the UK are already full of bloated and obese lending institutions. Moreover, wouldn't a Post Office bank have an implicit government guarantee on deposits, and therefore represent unfair competition for privately owned banks?

However, these questions are marginal considerations compared to Mandelson's ominous objective that this new bank should have a "clear social purpose". What Mandelson have in mind? Subsidized lending for the poor? Cheap financing for the government deficit? A People's bank sounds a lot like money pit bank.

State owned banks are always a bad idea. Inevitably, governments misuse them in order to achieve narrow political objectives. Before you can say "we need to help British industry with cheap credit" this bank will be top full of bad performing loans and huge losses.

The private sector has produced enough of those kinds of banks already. We don't need New Labour conjuring up another funny bank to add to our financial sector difficulties.

13 comments:

We need several new banks (or building societies), who start from scratch without any dodgy assets or unfathomable liabilities.

All depositors can move their money to the new banks, who then can cream off the best lending risks from existing banks. Thus the new banks become Good Banks and the old banks end up as Bad Banks, closed funds which gradually get wound down and bondholders and shareholders argue over whatever comes in.

The Good Banks can snap up all the branch offices, or even brand names from the old Bad Banks and to the outside world, everything continue as normal.

Post Office is to be the Bad Bank. The bad debts go into it +NR + BB and the other banks get well. Post Office has to have some form of social remit for its EU subsidy. Plans were announced in the last emergency budget for social savings, something along the lines of government matching savings up to £X for the most disadvantaged. It went largely unnoticed.

to MW:in theory letting banks collapse as other companies are ok. the whole point is that if you let one fail, all of them fail, basically the whole (or most of it) is insolvent. OK maybe little we can do about it. but who takes the tab ? shareholders and bondholders ? but who are they ??? isnt it mostly the other banks through their holdings, and the public itself, through their savings and pension funds ????

so do you really advise all of sudden collapse of most banks, people panicking taking away their savings, seeing their retirement account instantly devastated and social disorder ?

unfortunately, an orderly solution where the taxpayer foots the bill, is unfair, but anyway no one else can pay for that, and thats trying to avoid total chaos. thats the way of thinking of those advising those bailout plans, whether you agree or not.

1. We need a banking system, of course we do, but new ones will arise from the ashes in weeks or months if we just let the markets do their work.

2. Yes, shareholders and bondholders would take the loss on the chin - this would (among other things) expose the whole pensions industry as a giant taxpayer funded Ponzi scheme that benefits the 'savers' not one jot.

3. I'm all in favour of replacing existing old-age related pensions and welfare rubbish with a nice simple taxpayer-funded Citizen's Pension of about £130 a week for all those over 65.

For those who thought they'd built up a retirement fund, well, they have been lied to and cheated all these years. You can't talk your way out of a Big Lie by propping up a flawed system.

Don't forget that the tax breaks for pension savings are colossal, they 'cost' roughly as much as all the state pensions being paid out. The latter system is actually a much more cost-efficient way of alleviating poverty in old age.

Jct: This great idea shows exhibits the Sparta effect. When visiting, your gold was deposited in the city bank for clay tokens used while in town and cashed out upon leaving. Sparta got the interest while trading went on with the clay chips. If all bought stamps for cash, the state would get the interest while trading would go on with the stamp tokens. Peg your local stamp currency to the Time Standard of Money (how many stamp-pounds/hour average labor) and Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours. U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See my banking systems engineering analysis at http://youtube.com/kingofthepaupers with an index of articles at http://johnturmel.com/kotp.htm